How Facebook Intends to Supplant Google as the Web's No.1 Utility

Facebook appears to have turned a corner in the advertising business and is now moving into the heart of Google's territory: search. The social network will take $2.19 billion in display advertising this year, according to estimates by eMarketer. Google (GOOG) will only get $1.15 billion, the same study claims:

Those numbers ought to scare Google. If Facebook can replicate its display success in the search arena, then it might supplant Google as the web's No.1 utility.

The claim that Facebook is bigger than Google in display advertising is a shock. Any company overtaking Google at anything is unusual. But display -- banner ads, etc. -- is only a small subset of online advertising, which is dominated by search ads. In search, Google remains massively dominant. eMarketer noted separately that Google still represents just under half the entire market for digital advertising:

Google [is] taking nearly 41% of all ad dollars [with] Yahoo! and AOL losing share. Facebook, boosted by display advertising, will get 7% of US online ad spending this year, pushing past Microsoft to become the third-largest ad-selling company in the country.

This growth will mean Google takes more than three in every four search ad dollars spent in the US this year--a proportion that will rise further next year.

Facebook's search strategy
So Facebook has a long way to go. Last month, it took the first step on that journey via an ad campaign from Microsoft (MSFT)'s search engine, Bing!, which highlights the way Bing's results are informed by the opinions of your Facebook friends. Microsoft and Facebook have a deal in which Bing serves Facebook's search needs:

The campaign appears to threaten Google because it underlines two theories that people have used to suggest that Google's dominance of the web is vulnerable to the Facebook's momentum:

Facebook has highly distinctive data on its users it can use to inform their search results. Google must guess that you're interested in sports from the search terms you type; Facebook knows you're a fan of Liverpool F.C. because you friended the club.

Until now, Facebook was merely a cool tool for keeping in touch with other people. Facebook's search results were once laughable compared to Google's. But if Facebook can get its search play right it may be able to leverage its intensely used service to provide users with the kinds of things -- search results and music -- they would normally experience outside Facebook.

In other words, where once Facebook was merely part of our world, Facebook intends to become the world in which we merely exist. Currently, that "universal utility" role is largely performed by Google. It may not be a permanent state of affairs.